It’s a striking signal from Wall Street’s most closely watched research desk, and it comes at a moment when the Trump administration’s twin bets—on tariffs and military engagement in the Middle East—are colliding with a labor market that was already showing cracks.

The jobs number that rattled Wall Street

February payrolls fell by 92,000 — a number that Goldman economist David Mericle called a “reminder that job growth is still too low.” The bank’s estimate of underlying job creation sits barely above zero, trailing even the 70,000 jobs-per-month breakeven rate needed just to keep pace with new labor market entrants. Job openings, meanwhile, are still falling.​

The unemployment rate ticked up to 4.44% last month, and Goldman now expects it to reach 4.6% by the third quarter. An unusual revision to the labor force participation rate—down 0.4 percentage points, reflecting updated Census data showing more retired Americans than previously counted—deepened the picture of a softening workforce.​

Oil is the new wild card

The war in Iran has thrown a volatile new input into an already complicated economic equation. Goldman’s baseline forecast has Brent crude averaging $98 per barrel in March and April before retreating to $71 by year-end. In a worst-case scenario—a one-month disruption to the Strait of Hormuz—Brent could spike to $110, sending headline inflation to a spring peak near 4.5%.​

Even in the baseline, Goldman raised its headline PCE inflation forecast by 0.8 percentage points to 2.9% by December.​

Tariffs are already in the numbers

Goldman estimates that Trump’s tariffs have already added more than 70 basis points to core inflation. Net of those tariff effects, underlying inflation looks far more contained—core CPI near 1.75% and core PCE near 2.25%—suggesting the policy itself is doing meaningful inflationary work.​

The Fed is stuck

Rate cuts aren’t coming anytime soon. Goldman pushed its two expected 2026 cuts back to September and December, with the bank noting that “a higher inflation path will make it harder for the Fed to cut soon.” The Fed faces a classic stagflationary squeeze: a labor market soft enough to argue for easing, but an inflation path—driven by oil and tariffs—that argues for restraint.​

Not everyone is hitting the panic button

To be sure, 25% recession odds still mean Goldman’s base case is continued growth — and the bank’s own data offers reasons for cautious optimism. Productivity growth has averaged a solid 2.2% annualized this cycle, which Mericle sees as a reversion to the U.S. historical average after years of post-financial-crisis underperformance. Shelter inflation is also cooling sharply, with new lease rent growth running near zero year-over-year, which Goldman expects to drag overall shelter costs down from 3.1% to 2.3% by December. And Goldman itself notes that if the labor market weakens further, the Fed would likely cut earlier—providing a built-in policy cushion that didn’t exist in prior downturns.​

A strong Q1 won’t last

Goldman is tracking first-quarter GDP growth at 3.3%, but 1.3 percentage points of that reflects the one-time boost from last fall’s government shutdown ending. From Q2 through Q4, the bank sees growth decelerating to roughly 2.0%, 1.9%, and 1.9% respectively—a glide path toward stall speed.

For this story, Fortune journalists used generative AI as a research tool. An editor verified the accuracy of the information before publishing.